Apple thinks $7.50 is more than enough to pay for technology that Qualcomm says is essential to making the iPhone functional.
Testimony in the US Federal Trade Commission’s antitrust case against the chipmaker reveals that Apple’s chief executive officer back in 2006, Steve Jobs, didn’t object to paying licensing fees amounting to $7.50 a phone. But when that deal was on the cusp of lapsing in 2012, a possible fee increase threatened Apple’s profits, triggering re-negotiations that changed the dynamic between the companies, according to Apple Chief Operating Officer Jeff Williams.
“We had a gun to our head,” he told US District Judge Lucy Koh Monday during a trial over whether Qualcomm has abused its global dominance in the smartphone market. It “may not sound like a lot. We’re selling hundreds of millions of phones and paying billions of dollars a year.’’
The fee is at the heart of the government regulator’s case against Qualcomm. The chipmaker owns patents it says underpin how all modern, high-speed data phone networks work.
Fees provide the company with the majority of its profit, enabling it to fund technology development that helps cement its position as the leading chipmaker in the industry. The federal agency and Qualcomm’s customers are arguing that it’s exacting too high a price for only one part of what makes smartphones so attractive to consumers -- and doing so by illegally bullying its customers into paying up.
Qualcomm counters that it’s a relatively small amount for something that’s so fundamental to phones. Its technology determines how handsets are able to efficiently access high-speed data -- without which the iPhone would be just an expensive iPod, the San Diego-based chipmaker has said. Qualcomm maintains that it continues to contribute technology to other areas of the industry and its practices follow industry norms.
A $7.50 fee is a drop in the bucket considering that iPhones sell, on average, for $793 each. But it adds up. Qualcomm’s licensing revenue peaked in 2015 at $7.9 billion. In its most recent financial year, Qualcomm had revenue of $5.16 billion from its licensing division, even in a year when Apple had stopped paying fees. Apple sold 217 million iPhones in its most recent fiscal year.